Consumer Watchdog speak of artificially raised gas prices

Consumer Watchdog has delivered an analysis at a meeting of the state commission charged with investigating gas price manipulation. The analysis apparently shows that since the end of May this year, California’s largest oil refiners have engaged in unprecedented price manipulation to keep California gasoline prices artificially high using their leverage of over prices at their branded stations. The association has said that the tactics could violate both federal and anti trust laws and an agreement Tesoro struck with the California Attorney General. Consumer Watchdog has now called for the Attorney General to appoint an independent prosecutor.

The analysis

Using industry data and responding to industry insiders, the analysis from Consumer Watchdog shows that over the past 16 years, the price charged by California oil refiners to their branded stations averaged three cents more than the price they offered to unbranded, or independent stations. Branded stations must buy gas at whatever price a refiner sets. For the last two weeks, the average wholesale/rack price in Los Angeles that the state’s oil refiners have charged branded stations has been 30 cents/gal. more than the price charged to unbranded stations, artificially inflating the gasoline price in the state. California Energy Commission data shows that a sustained 30 cents gap is unprecedented statewide. Furthermore, similar price gaps have been reported at racks across the state, including the Bay Area.

Cody Rosenfield, Analysis Coauthor said, “California oil refiners are using their market power over their branded stations to force gasoline prices to consumers at the pump to rise at all gas stations. Just as supplies began coming in from outside California to moderate supply problems driven by unprecedented refinery outages, oil refiners began using their price leverage over their branded stations to keep gas prices artificially high.”

Deal violation?

The market move, Consumer Watchdog has said, appears to violate the Robinson-Patman Act, antitrust legislation written to protect businesses from arbitrary and unfair prices. It requires like and kind products to be offered at similar prices. When it comes to Tesoro, the association has said that the price difference charged to Arco stations appears to violate a deal made in 2013 with California Attorney General Kamala Harris when the company was allowed to purchase all of the Southern California ARCO stations from BP in 2013. In a letter describing the agreement, the Attorney General’s office stated, “Tesoro has agreed to maintain Arco’s status as a low cost fuel provider.”

The California Energy Commission (CEC) receives this data and is meant to verify Tesoro’s compliance. The CEC has also formed the Petroleum Market Advisory Committee (PMAC) to monitor gas prices in the state and provide expert advice in case of market manipulation.

Hearing

Consumer Watchdog presented the new evidence at the PMAC Committee, which has not met since California’s unprecedented gas price spike began in February. The Committee held the hearing at Berkeley’s Hass School of Business and was chaired by free market economist James Sweeney of Stanford. Stanford wrote, “although the public rhetoric places blame for the crisis on California deregulation, whether this deregulation was more than a minor influence is still unclear. The financial crisis, in contrast, was the direct result of California’s regulatory actions. It was not the result of deregulation but rather of overly stringent regulation.”

Severin Bornstein, a Chair of the Haas School, is also a member of the Committee. Consumer Watchdog has said that the venue was an unfortunate one as the Haas School has received millions of dollars in donations from major oil companies and their foundations, including Chevron, the BP Foundation the Shell Foundation and the Exxon Foundation.

The head of the Attorney General’s Anti Trust Section, Kathleen Foote is also on the PMAC Committee and Consumer Watchdog has called upon Harris to appoint an independent prosecutor into the oil refiner’s market misconduct.